On The Brink with Castle Island - Dave Balter (Flipside Crypto) (EP.29)

Episode Date: December 30, 2019

Dave Balter, co-founder and CEO of Flipside Crypto joins the show. In this episode we discuss:  - Dave's entrepreneurial journey to starting Flipside Crypto, his seventh company - His perspective on the public blockchains that are attracting meaningful users - His stance that many of these so-called protocols are actually companies And much more.  Learn more about Flipside Crypto at: https://flipsidecrypto.com/

Hey, everyone. This week's episode is with Dave Balter, the co-founder and CEO of Flipside Crypto. Flipside is a business intelligence and alternative data company based here in Boston. And so what does that mean? So Flipside runs infrastructure on about 35 different public blockchain networks. And what they're trying to do is seek to measure how these platforms are being used, who's using them, and what they're being used for. I like to use the analogy of having a satellite image over a Walmart parking lot and taking a monitoring view on how many customers are coming in and out of the store. And Flipside is basically trying to do this with public blockchains. They're trying to ascertain what they're actually being used for, who's using them. And I think that you'll find, and maybe you'll like it, maybe you won't.

But Dave is not ideological at all when it comes to crypto assets. He's not in one of these tribes like most people. He's not a Bitcoiner. He's not a smart contract platform guy. not a security token person. He's just purely analytical in his approach. He wants to understand the nuts and bolts of these networks. He wants to understand who's using them, how they're being used, and if there's any economic activity actually happening on them. Dave is also a seven-time entrepreneur. Flipside is a lucky number seven in terms of companies that he's founded. And so we talked

about what it's like to start a company in the blockchain space, how it's different and similar from starting early internet companies. And overall, what his view is on the talent, that we're seeing entering this space right now. In full disclosure, Castle Island Ventures, we are investors in Flipside Crypto. So without further ado, here's our conversation with Dave Balter. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants

that have been threatened by the housing crisis. of England has pumped 75 billion pounds more into Britain's ailing economy with a new round of quantitative easing. You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called the Bitcoin. Bitcoin. Welcome to the On the Brink podcast. I'm Matt Walsh.

Really happy to have Dave Balter, the co-founder and CEO Flipside Crypto with us today. Thanks for joining Dave. Excited to be here. Dave, so there's a lot to talk about. We love to start these podcasts with just a background and a career arc on how you actually came to found Flipside Crypto and what your career was like before crypto. How'd you get to where you are right now? Got it. Okay. Well, I'm an entrepreneur at heart spent the last 25 years building companies. Flipside's actually Company 7. A couple of fun wins, a couple of good losses. Did

everything in between. Most of the organizations are at the intersection of data and product and psychology, as a matter of fact, most of the things we think about are, you know, how are certain things influencing, how people are behaving, what things would you do with data or information that would inspire people to take action? And so Flipside fits pretty nicely into that with the F-CAS rating and some of the other fundamental stuff we're doing, which I'm sure we'll talk about. This business is a bit odd. I blame Matt Walsh, actually, a little bit. I was there at the beginning. He was. I was running a company called Milestone, which was in the death industry, death as in deceased industry, which has a lot of transformation to do. Anyway,

we're running a company in that space venture backed a couple of years in, and I actually had lunch with Matt and another fidelity gentleman Hadley Stern. And over the course of about two hours, there was this aha moment of, wow, this blockchain space is pretty fascinating. And went back to my office and our CTO and I started trading, started building algorithms to trade at night. And within a couple of months, it turns out that that business was becoming a business unintentionally. And beyond that, it was a little more fun than the death space.

So I always like to say Matt Walsh killed our last company. Hopefully your previous backers don't hold that against me. I don't know if that's been said out before. No, they actually, they were wonderful. It's true ventures. And we went to True and said, geez, we kind of have a problem. We've got this one company, this other thing. And they said, you choose.

You choose. Like we trust the entrepreneur. Yeah, it's a little messy, but you choose and we'll back that business. and took a bit, but we translated, shut down the other company, and away we go. So I remember, I think that was wintertime maybe, and I would go over your office in the morning, and we were just kind of talk about the industry and talk about some of the white space opportunities where we thought that companies might emerge. And we're talking about things like asset management for crypto.

We're talking about data products. What was it that made you decide to take the leap and actually start a company in the data category for blockchain? Yeah, so that was a bit accidental. I mean, data was, has always sort of surrounded all the businesses, but what led us here was we wanted to trade. And so now our third co-founder, another gentleman, Eric Stone, had built swing trading algorithms for hedge funds before we'd worked together previously. And we'd asked him to borrow his old algorithm to trade crypto, which basically meant rebuilding it from scratch, but he gave it to us. We started trading off that. It basically was a

measurement of volatility and financial health. And then we decided we wanted to get into, you know, we like that, but we were more fundamentals approach. We have a fundamentals approach to investing, so we started gathering more data. So it was really borne out of what we believed would be useful to trade. That eventually evolved into a business intelligence business. But And I think the practice for us was the more we started using data to trade, the more we realized there was very limited non-financial data that would enable people to make effective trading or corporate decisions. And so it just was born out of that. That's fascinating. So let's set the stage for people.

Can you talk a little bit about what Flipside does in terms of products, weed, who are your customers, and what, you know, you're actually providing to these customers. Sure. So the foundation of the business is the ability for us to interrogate blockchains and parse apart stakeholder behaviors. So what that means is we can apply our behavioral modeling tools and understand the behaviors of a speculator to someone who is mining, to someone who's staking, to an actual customer, to adapt. a voter, whatever behavior type we want to look at, we can separate out. Okay, so that allows us to see inside chains and understand both the customer activity, as well as the movement of tokens related to that customer.

So in essence, a blockchain organization who's operating their business, which we'll talk about, is, you know, is operating doing a bunch of things to try to to make it work. But in today's day and age, is pretty blind to what impact is this having beyond price? And we're able to use this data to help them understand what impact they're having. So you're giving the public blockchain protocols the ability to actually see what people are building on top of their protocols and to give them tools in order to either promote certain types of behavior or perhaps fix something. Sure. So one might be who's building. And Hey, I'm launching this big campaign to drive more developers to build programs on my chain or DAPs on my chain.

Okay, we can show you where people are building which ones are transacting deeply, which ones are wash trading assets, you know, which new ones have shown up and what they're doing. But maybe a better example. A number of chains are that have miners that associate with them. maybe don't know the behavior of their miners. How many of them are keeping rewards? How many of them are holding them and maybe creating liquidity droughts and then and then dumping them at sort of an aligned point of time to create an opportunity for speculation? So we're able to go in, extract exactly what the miners are doing. Okay, 94% of your miners are not liquidating rewards. These miners are the ones who are holding. This is exactly when they liquidated. And that gives a view

into like, do they maybe need to change their minor communications? Do they, are they, are they, you know, is that a healthy ecosystem? Is it not all that type of information? Got it. So one of the things that maybe the listeners have seen on BNBekoyne market cap or stock twits is the F-Cass score. Can you talk a little bit about what that is and why you put that into the wild? Sure. So F-CASS is actually, stands for fundamental crypto asset score. It is the tool we use to trade cryptocurrency early in our organization. So we spent about two years trading. We actually had two funds, very small, $10 million in principle. And F-CAS was, we used every two weeks, we rebalance the funds based on the changes or the signals that were coming from F-CAS and its sub-components.

F-CAS is a combination of three different algorithms we designed. That first evolution of, of a swing trading algorithm, it basically became a way to see if an asset was financially stable. It measures liquidity, a type of trading patterns, but is this something you could trade on and sort of understand whether it's going to swing hard in either direction? The second algorithm looked at developer behavior. So our thesis is you would want to invest in an asset that is producing good product. And so we look at open source code repos, we track about 30 data points across them, and we look for traditionally sound patterns of development.

And then the last is an algorithm that looks at customer activity, and the way we got to that was by interrogating the chains, removing all of the speculation, all of the mining, all the operator behaviors, and just looking at customers to understand, are they growing customers? Are they retaining them? Are they churning them? And so those are three sub components. We combine them into F-CAS. It becomes a sort of relative way to rate the fundamental health of a cryptocurrency.

And do you imagine that people will use this primarily for investment purposes? How are you seeing people actually put this into practice? Yeah. So they do. There is actually, we have a free tool. So there was an error we sort of decided we were going to move into helping the blockchains themselves run their organizations. For a little while, we took all the tools we used to run the funds and we started selling

it to some of the funds we knew. And then we sort of looked at ourselves and said, you know, let's focus. And so we decided to give away all of our investor tools. So if you go to our site, there's a tool called F-CAS tracker. It tracks all of F-CAS. It changes over daily 30 days, 90 days. You can do trend pattern analysis, look for signal, all that fun stuff. So investors do use it.

There's about 4,000 users of that tool now, and it grows by about 50 users a week. So I want to spend some more time talking about the product suite, but maybe before we do, just to set the stage, I'd love to just get your sense of, you know, this industry has evolved tremendously since you and I were having those initial discussions. And I think you have two kind of camps, maybe even three camps emerging. One is, you know, blockchains are a monetary phenomenon. And the most important thing here is the emergence of a non-sovereign store of value, Bitcoin being by far and away the leader there. There's another camp that is more around we are forming this technology thing that has the ability to disintermediate data monopolies.

And we're going to live in a world with tokenization everywhere. And there's going to be these public protocols that people can participate in. And maybe they'll have some value. There's probably a third camp, which is more on the financial market infrastructure. camp, which is around security tokens and private blockchains and things like that. So curious your perspective on, you know, one, do you even agree with those camps? And two, which camp do you fall into? How do you generally think about these assets, these crypto assets?

Sure. So I'm going to take a left turn on this one. So if you were hanging around in 2001, 2002 and the web was in its, you know, sort of like gotten beaten up infancy, you wouldn't even say you were in dot com. And you would, you know, you couldn't have predicted that a shopping site like Amazon was actually going to be a reality. You were still worried about pets.com going under or, gosh, streaming movies by mail, like that's ridiculous, right? And so looking in today's parlance, you sort of go, okay, there's all these opportunities that are happening in blockchain. But the truth is,

we probably are still early enough to not know which of them are really going to be world changing or frankly are all of them going to be world changing. So the easy answer to you is yes, period. All of those are great opportunities. We track 35 different blockchains now and so we can see into which ones are having success, which ones are gaining customers, et cetera. And I'd say the jury's still out. Some that you would never think of are having a lot of success, and some that are, you know, the biggest names out there are still trying to figure out how to actually become a real organization. So juries out on that one. Fair enough. So you've sort of waded into the crypto-Twitter Wars here a little bit recently with your take, and I'm going to

set the stage a little bit about this debate, but you have a point of view that these blockchain public networks should act like companies and in fact in many cases are companies. And there's another school thought that these are protocols. These should be governed like open source projects and, you know, there really is no central leader. They can't really be companies for various reasons. Talk a little bit about your view that these are companies or at least these networks should act like companies.

Sure. So let's start with the philosophy of what we call the 1-999, which is point one. percent of the organizations in this space are actually decentralized, liberated, much like Satoshi's view, Bitcoin being the one that really has made it to that level. There's about 0.9 percent that are aiming for that. Maybe they're close. Maybe they try they're decentralized in a way, but they still have sort of a central operating group.

Burst is one that's kind of fully decentralized, but you wouldn't know them too well. Decred is trying, but are they all the way there? Dash trying. Are they all the way there? 99% aren't even trying. That is a fact. So when we talk to these chains, it's an office with a bunch of people who are paid by a parent company. They're looking for revenue.

They're going to either survive or not survive depending on whether or not they get customers. And to me, that sounds like a business. And so I am as fantastically in awe. of the idea of decentralization as anybody. And I hope, I know Bitcoin has already solved it, and I hope some others do, but that doesn't mean you have to be decentralized to succeed. And as a matter of fact,

many will become centralized or are centralized and will let blockchain technology win in some other fashion. And that's okay. So one of the things that's interesting is that, so I tend to agree with this notion. So you have these quote unquote public protocols that are being funded, but we all know who the central person that started it. We know who the central team is.

They have a bank account. In some cases, maybe they don't have a bank account. They're just using, you know, Ethereum or some other asset. But a lot of these are also venture funded, and they're structuring rounds that might be simple agreements for future tokens, but they have a central person signing the term sheet. So you could make an argument that that is accompanied. And to your point, they're paying people. And so it doesn't look decentralized from the outside in, depending on how you look at it.

But I think part of the tension there is that there's a perception that if you're issuing a token as a company, then you're going to be deemed to be a security under the SEC's eyes in the highway test. So do you think that, you know, you just have teams that are trying to masquerade and investors even that are trying to say, look, this is a protocol deal when in effect they just can't say it's a company because they don't want it to be a security. Is that what's happening here? Well, certainly there's a distinction between the U.S. and the rest of the world. So many of these who might be U.S.-based have either decided to build a foundation that operates out of some other jurisdiction for their token or moved altogether to some other jurisdiction. The ones in the U.S., I would say if they haven't realized their security yet, they better get in line and act much like a security should because they are securities. And they're never going to be decentralized. They have ownership like an entrepreneur and want to succeed like an entrepreneur,

and all their employees are hoping to cash in options or do whatever. They're never getting decentralized, so act like a security. I would say I almost feel like the playing field for that battle is just in a different spot. It's not whether you're a security or not anymore. It's the promise of blockchain decentralization or the ability for the ultimate database to transact and change economies. What Morning Star is doing with Figure is a change of how the financial system will operate in a fantastic way. Figure decentralized, who cares? It's only about whether Morning Star can reduce fees in how they provide loans and everything else.

You know, loans across other things and credit and all the rest, that's what it's about. So Figure, you know, works well because it's home equity lines of credit, it's loans, it's things that actually are securities, right? But a lot of these networks are aiming to be something more akin to an Ethereum or maybe they're trying to be a file storage network, some sort of a utility token network. Did these things work if they're securities, or are we just going to live in a world where they just, you know, if they are securities, they just won't function? I don't think they work the way we've considered for the past three or four years what the definition of work is.

I think they will evolve to work. They're smart people with good money who are trying to build companies like any entrepreneurial ecosystem. And by the time we get five years from now, the ones who hold on to the 2017 era of what working looks like won't be here. The ones who go, okay, well, let's see, my technology is really good. It can be applied to make change for true enterprise level value. And that means I'm going to have to adapt how I go about this and maybe give up some of the terms. I might not even call myself blockchain anymore, but what I'm using is the technology to create change. That's what's going to happen.

So, you know, I feel sorry for those holding on to the yesteryear's promise. it's just not that world's over right one of the things that many people in the industry will probably agree with is that there aren't a lot of people actually using many of these public chains and it's be surprised that sometimes that's actually a controversial thing to say but you know people aren't really using these things for much but certainly there are networks and in some of your clients probably fall into this bucket where people are building things on top of them are there any best practices that you're seeing from teams that are pioneering public blockchains that you look at and you say well they're doing a good job getting people to actually entice to build things on their platform

yeah so i'd mention a few so one i'm going to get i'm going to get slapped around for this one i'm sure but um you know it's come out recently that tron is is looking to acquire steam and by every metric of customer engagement we have steam is one of the top performing platforms. I would say, unfortunately in this day and age, the way the whole ecosystem works, user and customers doesn't equate to price. And so Steam became a great acquisition target,

and Tron is smart to buy into that because what they know is, in the long run, where customers are residing and behaving, their success, like any industry. That's just a fact. So, you know, Steam, what do they? They do. They used the, you know, one of the oldest models in the world, content. You know, there's writers, producers, videographers, et cetera. And they created a platform for those people to engage in a way that was simpler than maybe some of the other content platforms.

They gathered customers. Folks like Horizon, amazing organization that is, is operating effective sort of payment side chains and a whole variety of actual use cases. to allow for enterprises to run their businesses better. Aeon, we love Aeon, we think they've got an amazing set of tools operating to enable sort of tapping into the current traditional ecosystem of Uber and Airbnb and applying blockchain tools to be able to use those systems more effectively. Like, these are all places where there's real customer needs that they're solving. and some of it really works. It just in today's day and age, that doesn't mean price.

Like we have to stop thinking about price as a justification for value. It's just a moment, you know, where, you know, this whole industry was born out of like, who's mooning, who's wrecking, who's whatever the, you know, whatever the term is. And that's not going to create good long-term businesses. Yeah, so this is an interesting conversation. There's probably some similarities and some dissimilarities between the web. I guess part of what I'm hearing from you is that, you know, we're in the early days. There's a lot of protocols being attempted.

If you're in the early days of the web, was it going to be OSI or was it going to be TCIP? We're not sure. I guess your perspective is, hey, we're a data company. We're going to deeply understand the protocols and we're going to be around to, you know, tell you who's building on whichever dominant ones end up being there. So I guess that's your perspective. there's another perspective, I think, just around utility into your price point that says public blockchains can only be secure if they're treated like money. And if there's this network security to actually reinforce the validation that's happening on these chains. And so, you know, I guess I would agree with you that price is a big distraction, but price really adds stability to these networks in some cases.

And you could argue that you wouldn't want to be building on an insecure chain. No question. So yeah, I don't disagree that the price is an evidence of whether it's a healthy ecosystem. But it may be a reset of expectations, an ecosystem that was operating in a price of an inflated $70 per token that's operating today at $4. The reality maybe four is right and it's still really healthy. It's miners are behaving well. It's stakers are staking. It's doing the right things. and it will take like any stock that gets whacked for being out of line, it'll take years to sustain and make that ecosystem work and right size itself. So I just want to keep people away from the like, I'm sitting on a token and like, oh,

this thing went up 60% today and, oh, I got crushed 60%. It's the wrong language to be talking in. Which are the ones that actually have real, real healthy ecosystems operators to, miners, voters, et cetera, that we should like stand behind and go, these guys, these guys are going to figure it out. Yeah. Have you been surprised in any ways that we are still kind of operating in that world where we have these, I call them alt-coin casinos that are, you know, kind of, it's all about the price. And I guess the second part of that question is, I guess that feeds into the regulatory environment that we haven't seen some enforcement actions to actually

clarify and to maybe put an end to some of that bad behavior. Yeah, I mean, look, when the, when the stock market first launched every con artist and scammer in the world showed up to figure out how to create stocks that the average person couldn't tell, you know, wasn't really offered on an exchange and, you know, it took years to clear that out of the mix. So where there's money to be made, those that can scam will show up. Those that can build a Ponzi scheme will attempt it if there's a loophole. And yeah, the regulatory environment hasn't been designed yet to protect that I am I am empowered by the fact that it seems the market is becoming savvier you don't see you know all these like random coins with some you know Stephen Segal coin Bitcoin with three

eyes you know that was Bitcoin 2 Gen I think that's right that was a hot one I I still owns I'm kidding that's not true but but you know those those don't happen anymore and so that's cleared out am I am I supposed of surprise we're still in an era where people are figuring out scams. No, it's not a short game. It's a marathon, not a sprint, and you're going to see this until there's a few chains that articulate here's where we can really drive value. People are just going to work to work around the system and scam people, and it'll go away eventually. So how does that, is this like any other industry you've ever built a company? And so this is your seventh company? How is it?

Is this different from other industries that you've been an entrepreneur? Yeah. So the first is part of the reason I'm in the industry, you know, sitting with you guys. But then every single interaction I have or had at the time and still have, like the smartest people I know are in this space. Like you can, you know, it's a smaller group than it was in 2017. A lot of the sort of, you know, honeymooners are gone. But I'll get in conversations. I'm like, wow, I don't know who that person is, but that blew my mind. And I'll just, I'll just stand over here and pretend like I know what I'm talking about. So, you know, it's attracting, it's attracting the best and brightest.

And it used to be follow the engineers. And now it's sort of, you know, follow the data scientists, follow the engineers, follow the operators. They're all coming here. I would say that's different. I would say it is, you know, You know, we built a company in the marketing space. Marketing was a defined industry with with a traditional foundation. And so people knew how to sort of like, oh, I know how to talk about marketing and now you've got an evolution. In this space, people don't even yet know how to talk

about it effectively. So it's it's more amorphous than most spaces I've ever seen. That presents more opportunity. I mean, I find that super exciting. It's like, you know, where can I riding on my horse and not really break anything while messing around so deeply. This is that space. And it's crazy interdisciplinary too, right? You have people that are coming at this from totally different schools of thought. You could be a staunch gold bug libertarian and you could really have a unique view on this industry. It's probably going to be around kind of a store of value, non-sovereign asset. You could also be coming at this space from a post-trade settlement financial services. I see back office people that just light up around this technology

and talking about some of the potential disintermediation plays that are around. You could also have this perspective of more of a technologist and data sovereignty type of angle around taking out Facebook and taking out Google. So I find it's, I totally agree that there's talented people coming at it. I often find it's hard to figure out which angle to focus on. Yeah. I mean, that's part of, if it's attracting that wide array of audience, first of all, something is going to happen. You don't put this many smart people in an industry with this many distinct talents and deliver something. It's like it's an impossibility that it doesn't return somewhere.

But the second to that is your, you know, the lack of maybe, let's call it focus because of all these different people. people is the natural journey of innovation. You know, it's, it's the, I didn't know I was going to create this thing, right? You know, like, I didn't know I was going to create LSD and now, you know, now I've created psychedelics. I mean, that's just how the world has evolved. It's always going to happen that way, right? One of the things that really attracts me to your business and one of the reasons why

we're investors is rich alternative data in every industry is really, um, you know, an attractive category. And so you have, you know, Walmart satellite images, you know, you have, you have omitur, you have people that are looking at eBay and pulling down specifics around skews that are being sold and trying to guess earnings on specific companies. So there is always data to be collected and there's a forefront. There's a frontier science here in blockchains that you guys are really at the forefront of in terms of understanding these protocols, extracting information off of these public networks.

So talk a little bit about chain walking and what the idea was behind that product, and then we'll get into some of the specifics of chain to chain. Sure. So chain walking is our process for going into any chain and applying our behavioral modeling tools. We basically build a schema of the chain, a parser, and then our tools go to work. The way our tools work is they don't identify any specific address as belonging to anyone or anything like that, but patterns indicate what that address is doing. So, for example, there is a set of patterns that would indicate how exchanges behave, the satellites that behave with them, the inter-intra relationship of tokens moving inside and between exchanges. And if you know the patterns, you can apply your tools and it just figures out what's happening. Okay, so chainwalking is that process.

We've now chainwalked about 35 chains, often in concert with the organization. So they come to us to chainwalk, and they do that for two reasons. One, it influences our accuracy of their customer behavior, which influences an F-CAS rating. But it also allows us to give in-depth stakeholder insight. So, sure, I want my F-CAS to be on market and to be as accurate. to my organization as possible, but maybe more importantly, I kind of need to know how to run this organization. And once you chainwalk, we can help you do that. It's a, the thing we are excited about most by it is now that we've started in-depth chainwalking, we can see across chains deeply.

So we can tell you benchmark patterns of, you know, how should miners be behaving, you know, what is a trend of customer acquisition that is, that is a good standard for this space. If you're worried that, you know, you're, you know, you have this much trading volume related to how much staking is happening, we can tell you whether that's like, no, that that's actually pretty healthy or, wow, you really have some work to do to solve that part of your organization. So the interesting thing is that any metric that can be gamed usually is gamed. And so one of the things that you and I have talked about in the past is, you know, so in the early days of satellite images over retail parking lot. If, you know, if you knew that you were being measured based on the number of cars that came into your parking lot and that that somehow would have an impact on your stock price, for instance, you'd probably go out and you'd hire a fleet of cars every Saturday morning to just drive into your parking lot. Yeah, I did that. I drove the car.

Yeah, that was your web 1.0 business, right? But so the point being that once people and once these public blockchains see that you're measuring it, they're probably going to try to game it. And we've actually seen this. You know, there's been some early literature around on-chain transactions, so transaction count on-chain. And you saw public protocols actually started to change behavior, and they started to, what looks like to me, just kind of arbitrarily move funds back and forth on chain to make it appear that people were using the chain.

So how do you protect against that? I mean, how do you remove the noise? Yeah. So a couple examples here. So one is seeing so many chains, it's pretty obvious. obvious when things are being gamed. I'll give you an example. In open source code repose, the easiest gaming activity is like, oh, dump a bunch of codes as commit, a bunch of code commits or pushes and like, that'll make, that'll make like my code look better. Well, we don't

look at just commits. We'll look at the balance of commits against QA or against stars. And so it's 30 attributes working together. If you're gaming all of them, your code's probably better. Okay. So, so like, yeah, that's okay. I often think on the other side, I think of like radar, you know, guns and, and, you know, and those that have radar detectors. Like, you know, yeah, the cops get a better radar gun and then you get a better radar detector and vice versa. In this space, you know, you start to see as patterns emerge, we work to stay ahead of like, if there's a pattern that looks abnormal. But we, we tend to find, oddly enough, that our customers will come to us and say like, I'm, you know, we don't seem like we're operating like a healthy ecosystem.

And the answers will be somewhat obvious. Geez, there's not enough transactions going through your smart contracts that are leading to outcomes. And it's less, okay, I'm going to, you know, I'm a fake transactions so that my chain looks better. It's more like, okay, wait, should I get more customers to use my smart contracts? Yeah, that would be, that actually is a good idea. And so it's more about how do I design a healthy system. If you start moving stuff like back and forth between addresses, that stuff's really easy to see. So that's not going to do much.

But build a healthier ecosystem. That's how you're going to win. Everything else is noise. To that point on building healthier ecosystem, you're talking to a lot of corporates as well and your travels. And at what point do you think that we'll start to see companies building things on top of public chains beyond just custodial infrastructure and exchanges? Yeah.

I think we're still in the proof of concept stage. And you're seeing a lot of it, you know, chain as you know BMW and Walmart I think and you know there's there's like you're seeing these proof of concepts they'll take some time to turn into into real stuff and you know if you're a you know if you spend any time in enterprise companies they'll innovate for years before you know the masses you know is determined to be enough to like go change their business so I don't think there's any actually any shame and in like hey we may be in a three five year proof of of concept phase because if there's if this is a if this is the industry we all know it is uh we're not

thinking in a year of proof of concept we're thinking in 50 years of transformation and so do i think enterprises are coming yes do i think most of it is is going to happen on private chains that you know that are are things that you know supply chain and they're already happening it'll trickle to public chains when the public chains start behaving more like companies and providing resources to enterprises like a private chain would. It's going to happen, but the proof of concept is stage is going to have to happen for a while first. And how do you explain that phasing and that timing to sources of capital as an entrepreneur? How do you get that point across that we're in this infrastructure building phase?

Well, you know, I would say you, the easiest way to think about this is if you're trying to build a company in this space, like any venture-backed space, you can't think about what's directly in front of you, but about what happens if even a part of your vision comes true. So, you know, there's enough happening in data and blockchains that are starting to survive. It's pretty easy to sort of articulate why a data-oriented business understanding those might work. But the goal is to say, look, instead of paying attention to all the noise about pain and all the, all the like, oh, this one's price dropped 90%. It's terrible. You know, they're not gaining customers. You point to the like, let's look at other. industries and what it took for innovation to transform those industries, right? The internet,

you know, didn't start in 2000. It started in the 80s and even a little before with DARPA and a bunch of other stuff. It'll take years. So let's not paint the picture of invest in us because next year we're going to succeed, but because if this is what we think it is, everything will change. Yeah. Yeah. So that's a really interesting point. How do you think that that resonates with the venture ecosystem. One of the interesting things, and I'll be curious to get your comparison on the Internet versus blockchains is that we're seeing the emergence of specialist funds now with crypto-dedicated funds, and largely traditional venture funds haven't really dabbled too much. Maybe they have an investment or two in the space, but it has been kind of a specialized approach.

Is this something that's new to blockchain, or have you seen this in other categories? I was reading the article on Fred Wilson investing in media companies lately. You know, like he likes a zig when others ag or vice versa. I can't remember which it was. But I love it. Like media is like, oh, no one likes media. And here's Fred Wilson like, oh, yeah, okay. I'm just going to put some money over here.

Have fun, everybody. I like to think of this space in sort of a similar fashion. This is the luckiest moment. It's going to feel painful if you're, hey, I'm trying to raise money from traditional VCs because they're sort of going. going, oh, that, you know, was that a space? I don't know. Did that happen? That 2017 thing, I bought, I bought some tokens and, you know, what happened to those things? They're on some wallet somewhere. And, and yeah, it's, that's a little painful. The dedicated funds are,

are sort of, you know, like the luckiest group, I believe, because they have the world of any crypto organization to possibly get into. The VCs, you know, aren't paying, some aren't paying enough attention, but I think we've all watched the VC market enough to know one or two wins in this space, and suddenly every VC will say they've been investing in crypto all along, and they never stopped. And as a matter of fact, it's in their LP and GP docs, and like, it's all great. So, you know, try, you know, it's like being present as an investor is never a good strategy, right? It's thinking, you know, this is, this is the time where everybody seems to not be paying attention, Fred and media.

But gosh, it's still moving along and it's not going anywhere. And there's enough smart people here. Maybe that's the time to start giving it a closer look. Yeah, you're certainly starting to see a lot of barriers fall down with qualified custody falling into place, starting to see regulated spot markets. And then you're actually just starting to see some of this technology work. And oh, by the way, Bitcoin's been around for 11 years and it's still running. Right.

Like that's in and of itself an incredible thing. Yeah. I mean, it's great news, you know, like everyone likes to, you know, put you on a pedestal so they can knock you down. You know, it's great news when like, oh, this, these guys are, they're going to go away. Everyone thought they were great. But, you know, meanwhile, yeah, custody. Oh, that got solved. Yeah, okay, that's not really news anymore. Okay, this got solved. Yeah, that's not really news anymore. It's not going to be a lightning bolt where everybody in the world one day says, oh, my gosh, blockchain, it worked. It's going to be one day we wake up and we're like, oh, Oh, yeah, I guess blockchain is working in the credit and loan industry. And it's, wow, it's kind of working over here in payments and it's working over here in supply chain. And wow, yeah, that happened. Yeah. It's going to be no obvious moment. It's just going to be a lot of little things adding up together.

So with that said, you know, let's move on to some closing questions. If there was one thing that you're worried about or you think that the industry should be focused on and kind of collaborating to solve, what would it be? Yeah, I mean, I think everybody is worried about regulation, and I think there's collaboration happening. I think we've unfortunately been sort of pacified almost. Like we've resigned ourselves to like, well, it's going to take a long time here, and that's what it is.

I think it's good that it's not the thing. You know, I used to walk into meetings and everyone was like, when is the SEC going to do X or Y? like, that shouldn't be, let the SEC do its work and we're going to go to the other side. The thing we should be unifying on is, okay, what is a really, real, real, real, really successful organization looking like? Is it, is it their price remains high or is it the balance of how their miners behave, how the, how the stakers are performing, are they aggregating customers, is that happening?

Are they working in lots of proof of concepts that are continuing, not ending? All this sort of traditional things you would look at for any business. And I think the space right now we're not rallying around reality. We're rallying around potential. And the sooner we get to reality,

the sooner we're all going to be like, that's why we came to this space. So talking about that reality, maybe digging into that in the early days of the internet, you had a lot of organizations, like big Fortune 500 organizations that tried to build web browsers, thinking that that would be how that they would play this and that people would come to their web browsers. Similar thing I think is happening now with public blockchains.

I mean, you have thousands of these things. And my guess is that we're going to have a massive consolidation. My bias is that it's going to be on to chains that have the ability to have non-sovereign stores of value, You have monetary premiums and can address the velocity issues. But putting that aside maybe, do you believe that we'll have this consolidation with people taking these proof of concepts and just building them on top of other platforms? And we'll start to see that browser moment collapse. Sure. Absolutely. I love the browser moment because it's like the enterprises knew that they should be playing here. But everybody had the story wrong.

yet the enterprises that started the innovation ended up in the right spot. So it's not bad that they tried the browser because nobody knew any differently. Just like here, okay, I'm going to try this, I'm going to try this. They're now worlds ahead of any enterprise that is not even getting started. And that's the big play.

I think about that in the context of when I was at Fidelity, and you talked about Hadley earlier, So we had, we called it Tibcoin. It was named after one of the developers, but it was just a fork of Bitcoin and we're messing around with it for rewards dollars. But that's the equivalent of building your own kind of browser. It's just rolling up your sleeves and seeing how the technology works. And maybe some of these private blockchain implementations will actually be beneficial,

just in the sense that they get a lot of people looking at this stuff and building things and figuring out how to build wallets. That's right. I mean, you said something about consolidation. This year is going to see a massive. amount of chains go away, projects go away, consolidation. I mentioned Tron and Steam. Like that's going to happen more and more. But you think about it if, you know, the ones that consolidate, now you're building a better, stronger organization, you know, that will, that will

survive. And so, you know, I look at it like, I can't, I want to accelerate this. Let's get 2020, like, let's get all the, all the sort of, the ones who are tourists to sort of go away, the ones who worked really hard but couldn't quite get all the way there to consolidate. And then watches 2021, 2022 build into these these real organizations, the Amazon's and the Netflix of this, of this industry. And what are you most excited about over the next year or two? I think I'm, I mean, look, I'm excited about the transformation to, you know, moving from protocol to business is my sort of, you know, my, my hope for this industry. I think I'm excited for some of the real financial institutions who are dipping their toes,

the morning stars, the Moody's, really powerful stuff starting to happen in the world where, you know, lots of the world understands how to play. And underneath it all, blockchain is sort of swapping out. It's like, you know, the plane is flying and they're changing the wheels. And no one really knows, but they're going to wake up and they're going to land on the blockchain and say, hmm, that that happened. That's a great place to leave it. Where can people find out more about Flipside? Sure, FlipsideCrypto.com.

That's the easiest. You can download a free investor tool, F-Cast tracker. If you're a protocol or a platform or a project, you can also go there and request information on your F-Cass rating or how to get chainwalked. So, yeah, dot com. We'll use that. Dot com.

Yeah. Flipsidecrypto.com. That sounds great. Dave, thanks so much for joining the pod. Thanks.